Rises if Risk is On, Falls if Risk is Off

Rises if Risk is On, Falls if Risk is Off

Cheryl Sanders
August 16, 2017

The dollar set an eight-week low against the yen on Friday as escalating tensions between the United States and North Korea triggered yet more investor flight to safety.

After a week of market jitters from escalating rhetoric between the nuclear-armed nations, investors were emboldened after South Korea's president said resolving North Korea's nuclear ambitions must be done peacefully and USA officials played down the risk of an imminent war.

"It takes a little more than talk to cause a general decline", added analyst Richard Steinberg of the law firm HighTower Advisors.

The aggressive rhetoric helped snap a nine-day stretch of record closes on the Dow Jones Industrial Average, while the S&P 500 had its worst weekly loss since March 24.

USA equities steepened their losses late in the session after President Donald Trump said his earlier warnings to North Korea may not have been tough enough. But Moore said she's watching for central bank risk and expects in the next couple of weeks that there could be signs that the European Central Bank will step back further from its asset purchase program.

However, market watchers said equity markets remained focused on the deepening geopolitical crisis, as angry threats from Washington and Pyongyang stoke fears of a catastrophic miscalculation with global consequences. However, he added that "tensions might flare up again". "Even as we develop those options, we are mindful of the consequences of executing those options, and that makes us have more of a sense of urgency to make sure that we're doing everything we absolutely can to support Secretary [of State Rex] Tillerson's current path".

CURRENCIES: The euro slipped 0.1 percent to $1.1176 while the dollar was steady at 109.20 yen.

The dollar was up 0.5 percent against the Japanese yen, reversing some of its 1.37 percent loss last week against the safe-haven currency.

US equities gave up more than one percent last week as tension between the United States and the Democratic People's Republic of Korea (DPRK) escalated. The yield on the 10-year Treasury note rose to 2.22% from 2.19% late on Friday.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday.

The yen had limited reaction to data on Monday showing that Japan's economy expanded at an annualised rate of 4.0 percent in April-June, the fastest pace of growth since January-March 2015. Spot gold dropped 0.6 percent to $1,280.71 an ounce.

Tesla (TSLA.O) rose 1.7% after two brokerages raised their price targets on the stock, citing the potential success of the company's Model 3 sedan.

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